Israel’s Defiant Economy

The assumption that Israel’s economic growth depends on peace accords, and that Israel’s economy cannot withstand BDS (boycott, divestment and sanctions) pressure, are inconsistent with reality.

In fact, Israel’s unique economic growth — from $1.5 billion GDP in 1949 to $300 billion in 2014, from $50 million in exports in 1949 to $97 billion in 2014, and from no foreign exchange reserves in 1949 to $92 billion in 2014 — has been driven by aliyah (Jewish immigration), fiscal responsibility, brain power, cutting-edge commercial and defense technologies, exports, military deterrence and (most recently) the discovery of natural gas reserves. Not by the peace treaties with Egypt and Jordan, or by the Oslo Accords with the PLO.

Israel’s GDP surged by 8-14 percent annually in the years following Israel’s victory in the Six-Day War (1967-1972), and by 9 percent after the aliyah wave of a million olim from the Soviet Union in 1990. On the other hand, the post-Oslo (1993-1996) economic growth of 4-7 percent was triggered mainly by the aliyah ripple effect, but was marred by rapidly deteriorating budget and trade deficits.

In addition, Israel’s 42.5 percent annual inflation in 1977 — when the Begin-Sadat peace initiative was launched — skyrocketed to 111.4 percent in 1979 and to 445 percent in 1984. Inflation was reduced to 19.7 percent in 1986, and to the current low single digit levels through an unprecedented policy of fiscal responsibility, not through the Israeli-Egyptian peace treaty.

The impact of the BDS movement on Israel’s economy is minor as demonstrated by the improved trade balance between Israel and Turkey and Britain, independent of the Turkish government and British Parliament support of BDS. Moreover, Israel’s vulnerability to BDS is highly constrained since 90 percent of Israel’s exports are business-to-business, enhancing the cost-effectiveness and the level of health, medicine, irrigation, science, education and national security of Israel’s trade partners. Furthermore, Israel’s trade is trending away from Europe — the epicenter of BDS — and toward India, China, Russia, Japan, South Korea and the former Soviet republics.

According to the Aug. 11, 2014, issue of the Turkish daily Today’s Zaman: “It is said that there has been a serious crisis between Turkey and Israel. … But, the foreign trade volume between the two countries rose from $4 billion in 2011 to $4.86 billion in 2013. … Giant ferries depart from Turkey’s port of Iskenderun and anchor at Israel’s port of Haifa, carrying Turkish semi-trailer trucks which then travel to Arab countries. … Defense exports [from Israel] to Turkey were never halted. … Oil coming from Iraq’s Kurdistan to Turkey is indirectly sold to Israel. …. [Turkish] Prime Minister Erdogan’s son, Burak, shuttles his cargo ships between Israel’s port of Ashdod and Turkey.”

The Nov. 18 issue of The Times of India opined that “despite its burgeoning ties with China, Israel doesn’t look at Beijing as a strategic partner the way it does at India, Israel’s number one buyer of military systems. … [India’s] Prime Minister Modi commits himself to taking ties with Israel to a new level. … With an annual trade volume of over $10 billion, China is Israel’s largest trading partner in Asia. … India’s annual trade with Israel is still around $5 billion, but this could double with the signing of a free-trade agreement.”

The Asian Defense News reported that Israeli arms developer Rafael had won a $525 million bid to supply India with over 8,000 laser-guided, portable, anti-tank Spike missiles and more than 300 launchers. The Defense Industry Daily announced a successful test of the Israel-India Barak-8 medium-range marine and land-based missile defense system, which followed a $300 million Indian acquisition of Israel’s Barak-1 supersonic, vertical-launch, short-range air defense system. “Israel may be on its way to surpassing Russia as India’s largest partner,” the report said.

Irrespective of recent assessments of an economic slowdown, the Organization for Economic Cooperation and Development expects 3 percent growth in 2015 and 3.5 percent in 2016, “which should avert any rise in unemployment [5.7 percent in October 2014].” The Nov. 25 issue of the Economist Intelligence Unit maintains that Israel’s recent manufacturing and export data “seem to confirm that the rebound in activity in September was sufficient to offset the impact on the Israeli economy of the July and August Gaza hostilities.”

Indeed, foreign entrepreneurs express their confidence in Israel’s long-term economic viability, which is increasingly acting as a critical pipeline of cutting-edge technologies to the high-tech industries in the U.S. They seek to harness Israel’s unique brain power, which, due to minimal Israeli natural resources, has had to come up with creative solutions to unique agriculture, irrigation, energy, medical, health, homeland security and military challenges.

For instance, Lockheed Martin plans to hire about 1,000 people to man its new subsidiary in Israel’s Beersheba Cyber Park (next to a subsidiary of another U.S. giant, EMC), which has signed cyber cooperation agreements with Ben-Gurion University, the Technion in Haifa and Hebrew University. Microsoft, based in Redmond (Wash.) — which operates two research and development centers in Israel — acquired Israel’s Aorato for $200 million. South Carolina-based 3D Systems acquired Israel’s Cimatron for $97 million. China’s Long Tec Venture led a $10 million round of private placement in Israel’s RealView, South Africa’s Naspers and Britain’s Lord David Alliance Venture Fund led a $15 million round in Israel’s Similarweb.

These companies, along with 250 U.S. high-tech giants operating in Israel, concur with the assessment made on Nov. 26 by Greg Case, president and CEO of AON, the leading global provider of risk management solutions: “Our clients are aware of the risks and the opportunities of doing business in Israel. … Risks in Israel are similar to other parts of the globe. … Israel is a vital, growing and innovative economy.”